Purdue University - Krannert School of Management; Duke University - Finance

Date Written: September 21, 2018

Abstract

Financial constraints can cause firms to reduce product quality when quality is difficult to observe. We test this hypothesis in the context of medical choices at hospitals. Using heart attacks and child deliveries, we ask whether hospitals shift towards more profitable treatment options after a financial shock — the 2008 financial crisis — and whether the shock worsens patient outcomes. The crisis caused an unprecedented shock to hospitals’ financial health and was followed by a significant and sudden decline in capital investments, yet we find no overall effects on treatment choices and weak effects on patient outcomes. The results are similar for for-profits and nonprofits, and somewhat stronger for hospitals with more tightly integrated physicians.

Insurance & Financing in Health Economics eJournal

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Thomas E. Getzen at Temple University - Dept of Risk, Insurance & Health Management, Tor Iversen at University of Oslo, David M. Cutler at Harvard University - Department of Economics, Art King at Lehigh University - College of Business & Economics

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